South Africa hanging by a thread

Economists warn that the relationship between the ANC and the DA has hit rock bottom, and the future of the current Government of National Unity (GNU) is hanging by a thread.

South Africa suffered blow after blow this week, with the 2025 National Budget being passed with controversial tax increases and the United States announcing a 30% tariff on South African goods.

Locally, the National Assembly passed Budget 2.0 despite a controversial 1 percentage point increase in VAT and Personal Income Tax bracket creep.

BER Chief Economist Lisette IJssel de Schepper said that while the certainty of passing the budget is welcome, concerns now shift to the future of the GNU.

The 2025 budget was adopted in the National Assembly by 194 votes to 182 votes following weeks of political negotiations.

Diametrically opposed parties, the DA, FF+, MK and EFF, all voted against the fiscal framework. However, the ANC got support from smaller parties, including non-GNU members Bosa and ActionSA.

That said, the motion endorsing the fiscal framework, supported by ActionSA and adopted by parliament’s joint finance committees, is problematic as it is conditional on removing the tax increases.

The motion, however, only “recommends” the National Treasury return to parliament with alternative revenue measures or expenditure cuts to fill the gaps in the next 30 days.

This agreement is not legally binding.

Another problem is that the National Treasury cannot remove the half-a-percentage-point increase in VAT planned for 1 May.

The only way to stop this sales tax increase from happening is for parliament to pass another law to this effect.

The DA, the second biggest member of the GNU, has also gone to court. It states that the parliamentary committee process was unlawful and unconstitutional.

It also wants the court to stop the VAT increase as it argues the Finance Minister should not be able to issue a VAT increase before parliament has had a chance to pronounce on the matter.

Meanwhile, the DA’s Federal Executive is meeting to determine if the party will continue participating in the GNU, having gone against the ANC-led coalition’s budget, and the ANC having shopped outside the GNU for votes.

“It’s clear that relations between the DA and the ANC have hit rock bottom, and the future of the GNU hangs by a thread,” said de Schepper.

“If the DA does quit the GNU and return to the opposition benches, the ANC will probably seek to draw smaller parties like ActionSA and Bosa into the GNU.”

“But this means it would face a mighty tussle to muster a majority every time it seeks to pass legislation.”

US Tariff Increases

It was also an eventful week on the global front, as US President Donald Trump announced new tariffs in his “Liberation Day” speech.

The worse-than-expected reciprocal tariffs sent shock waves through financial markets, as Trump’s tariffs ranged from a minimum of 10% to 50%

In theory, reciprocal tariffs should account for tariff and non-tariff trade barriers to level the playing field between importers and exporters.

Calculations on this should be extremely challenging, as non-tariff barriers are far more difficult to determine.

However, the USA instead focused on a simpler formula, dividing its trade deficit by the country’s imports into the US. This figure was then halved to be “kind.”

For South Africa, the USA’s trade deficit of $8.8 billion in 2024 was divided by imports of $14.5 billion to get a 60% “tariff charged by South Africa.” This was then halved to get 30%.

“Of course, the trade deficit and imports do not accurately reflect the barriers to trade the US faces, but alas, with marginal differences, this is the approach taken by the US,” said De Schepper.

South Africa’s 30% tariff on its exports to the USA will mainly hurt the automotive and some agricultural sectors the most.

However, one should note that a tariff on all producers of a particular good worldwide will push prices up in the USA.

Most notably, several key exports, such as PGMs and gold, are excluded from the 30% tariff, softening the blow.

Initial estimates of the potential impact of the tariffs show that they will be significant, with JP Morgan expecting them to push the USA and global economies into a recession.

“It feels a little pointless to put numbers to the potential economic impact of it all at this stage,” said De Schepper.

“Financial markets will need some time to settle, with SA assets hit by global whims and local developments at the same time, and the US may backtrack on some of the announcements.”

“Beyond the direct trade impact and the consequent impact on production, sentiment has taken a serious knock.”